The Digital Imperative – is your company ready?

BCG in this article shows how firms that are being “driven-to” software must adopt the practices of software firms — even if they are not software firms: E.g., agile product development, business model testing, self-disruption, platform architectures, ecosystem management, etc.

The Digital Imperative

As entire industries are disrupted by bold digital entrants and business models, more and more companies are at risk of extinction.

Digital strategy and transformation must therefore be a top priority of the CEO and the senior management team. Companies can’t just dabble at the edges by appointing a charismatic chief digital officer or CIO, adopting the latest shiny technologies, or “letting a thousand flowers bloom.” The digital imperative calls for more fundamental action in five areas.

1.Prototype Your Strategy

Leading digital companies test and refine, or prototype, products and strategies in close cooperation with customers and at a dizzying pace. For example, Amazon has introduced e-readers, tablets, smartphones, cloud services, delivery services, and online marketplaces—all within the past ten years. We have found that this test-and-refine approach can greatly inform the world of strategy. (See Exhibit 1.)

A company’s organization and culture must also support digital transformation, with structures, governance, and incentives that promote speed, risk taking, and experimentation—rather than kill disruptive projects before they bear fruit. (See “A Breakthrough Innovation Culture and Organization,” BCG article, October 2014.)

2.Disrupt Your Business (Before Others Do)

Executives need to create their own “digital attacker” businesses. Long-dominant companies are increasingly under attack from a host of digital start-ups that are out to reinvent businesses and industries by addressing consumer needs in completely new ways. Examples are emerging in every industry: just look at Uber in the taxi business and Airbnb in travel. And the pace of disruption is rapidly increasing. Digital disrupters are themselves constantly under attack, as witnessed by the start-ups targeting established companies such as Facebook, itself once a disrupter. (See Exhibit 2.)

Incumbents should be more disruptive in their approach and not leave the playing field open. Large companies hold a lot of cards—including resources, assets, relationships, and data—that smaller competitors frequently do not have enough of. But they often do not fundamentally rethink their business model. Only rarely do they launch anything that might attack the current business.